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What is compounding interest?

April 26, 2017compounding

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What is compounding interest?

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Compounding interest, also called anatocism, is interest which is regularly added to the debt (compounded). Interest is then calculated not only over the principal (as it is done in the case of simple interest), but also over the interest that has been added to the debt before – in other words, it is calculated over the total amount owed. With compound interest, the frequency of compounding influences the total amount of interest paid over the life of the loan.